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Richard Haase on when the housing market might correct itself.
As Richard Haase sees it, Baton Rouge probably has another 18 to 24 months to enjoy the peak in the single-family home market.
That peak, the Latter & Blum president notes, has been an exceptionally favorable one: from 2010 to 2015, the Baton Rouge area has enjoyed a unit sales increase of 40%.
But in a year and a half to two years, correction will set in. Prices increases will start to level out, and inventory will begin to build again.
It’s just the natural cycle of things. A real-estate market typically is driven by four phases: peak, correction, trough, and recovery—each of them characterized by certain factors, including available inventory, unit sales, and pricing for housing. All cycles are influenced by the bigger picture, such as where the Federal Reserve sets the long-term interest rates.
“When I look at those three metrics, I measure what they’re doing,” Haase says. “Based on what each of those metrics is doing, we’re either in a peak, correction, trough, or a recovery.”
Each phase has typical durations within the cycle, which are affected by patterns in unit sales and available inventory.
“If you pay attention to the patterns, you can tell where the market is headed, and the duration of those cycles is fairly predictable,” Haase notes.
The duration of the cycles are affected by two things: local market trends and macro-market trends, or what’s happening outside of Baton Rouge that can still affect the local market.
“I don’t want to be painted as an alarmist, because we are in the midst of a very strong market,” Haase says. “But we get in that classic peak market pattern for five years, and five to seven years is the typical duration of that peak cycle.”
But he insists that’s no reason for potential buyers to shy away from buying a home.
“As long as you’re in a peak market that’s going to sustain, it’s okay to buy in a correction,” Haase says. “During the aftermath of Katrina, there was a huge anomaly in the supply and demand picture. Buyers who lost their home or property flocked to Baton Rouge and the inventory in greater Baton Rouge was absorbed almost instantly, so supply was overwhelmed by demand.”
Haase explains that demand lessened when homeowners realized they could get their properties fixed, and move back. Once the demand went down, the market corrected. For those who purchased property during the Katrina aftermath, selling it resulted in a loss, because the peak market was not a sustainable one.
The other thing to watch out for is getting too excited over the peak, and getting stuck with too much property.
“Whenever you make big financial bets, like developers or builders, they jump in too late into a peak market,” Haase says. “If they don’t do it the right way, they can get caught holding too much real estate when the market softens. It’s important to understand where we are in the market pattern, so that you won’t be holding too much speculative real estate.”
Two things Baton Rouge has in its favor: First-time homebuyers are finally buying, and the job market is strong, as that is relative to the real estate market.
“We’re experiencing that a lot of people that have put off home buying; now they can get the financing on the house and they can go out and buy,” Haase says. “The market is in equilibrium, supply is equal to demand, and the number of buyers that had put off buying are looking to do it now, because the market is sustainable.”
